Predicting Long-Horizon Stock Returns: Evidence and Implications

Reichenstein, William; Rich, Steven P.

doi:10.2469/faj.v50.n1.73

Cited by 11 publications

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“…The third examines historical autocorrelations. Fama and French (1988a), Campbell and Shiller (1988), Reichenstein and Rich (1993), and other authors have shown that the dividend yield on a stock index and, to a lesser extent, the earnings-price ratio can predict long-horizon stock returns. In academic work, earnings-price ratios are usually preferred to the more familiar price-earnings ratios.…”

Section: Evidence Against the Random Walkmentioning

confidence: 95%

“…'see, for example, De Bondt andThaler (1985, 1987), Poterba and Summers (1988), and Shiller (1990). 10 See, for example, Fama andFrench (1988a and, Sharpe (1990), and Reichenstein and Rich (1993). For a similar discussion of bonds, see Chang and Buang (1990).…”

Section: Regressionsmentioning

confidence: 99%

“…The rational markets story says that mean reversion is the natural product of efficient capital markets with time-varying risk premiums. Fama andFrench (1988a, 1989), Sharpe (1990), and Reichenstein and Rich (1993), among others, champion this story. They argue that required rates of return tend to be highly autocorrelated but slowly mean reverting.…”

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confidence: 96%

“…Distant returns are negatively correlated. Actual returns r e v e r~e .~ ---%is example comes from Reichenstein and Rich (1993).…”

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confidence: 99%

“…Both the random walk view and rational markets story imply that short-term (weekly and monthly) returns cannot be meaningfully predicted, but they give different opinions about the predictability of long-term (one year and longer) returns. For more on this topic, see Reichenstein andRich (1993, 1994) (Charlottesville, Va.: Institute of Chartered Financial Analysts, 1990).…”

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confidence: 99%

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Time Diversification Revisited

Reichenstein¹,

DorsettDovalee²

1995

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References viii ix vii With the publication of Time Divenification Revisited, Bill Reichenstein and Dovalee Dorsett broaden the scope of time-diversification theory and contribute to its practical utility. Discussion in the literature has centered on the role of history, past and future, in the financial markets: Are they governed by chance, as the random walk devotees contend? Or are they mean reverting, in which case portfolios diversified by investment horizon make sense? The authors of Time Divenification Revisited contend that these two views of market behavior cannot be distinguished statistically, although they do produce daerent projections of ending wealth and shortfall risk. Accordingly, Reichenstein and Dorsett attack the problem pragmatically by examining corresponding sets of future returns under each assumption. Moreover, the portfolios they follow, rather than being full of stocks or bonds or cash, include a mixture of these assets allocated in the same proportions that actual investors choose, given their own risk preferences and lie-cycle stages. Investment practitioners will find most useful the two sets of graphic depictions of ending real wealth and shortfall risk for portfolios of various compositions. The asset allocations of these portfolios are similar to what an investment advisor might prescribe for individual or pension fund clients. With these exhibits, an advisor-whether of the random walk or the meanreversion persuasion-can illustrate for his or her clients the consequences of several conventional asset allocation choices over several investment horizons. A l l in all, we believe this monograph is an eminently useful tool for practitioners. It will expand their own understanding of time diversification and enhance their ability to translate this knowledge for their clients. The Research Foundation is pleased to present this work.

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Section: Evidence Against the Random Walkmentioning

confidence: 95%

Section: Regressionsmentioning

confidence: 99%

mentioning

confidence: 96%

“…Distant returns are negatively correlated. Actual returns r e v e r~e .~ ---%is example comes from Reichenstein and Rich (1993).…”

mentioning

confidence: 99%

mentioning

confidence: 99%

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Time Diversification Revisited

Reichenstein¹,

DorsettDovalee²

1995

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Risk–Return Assessment: An Overview

Dhankar

2019

India Studies in Business and Economics

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Market timing using strategists’ and analysts’ forecasts of S&P 500 earnings per share

Chung

Kryzanowski

2000

FSR

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This paper examines the bias in and usefulness of top-down and bottom-up consensus forecasts of earnings per share for the S&P 500 Index provided by market strategists and analysts to I/B/E/S. These forecasts exhibit a significant optimism bias that decreases over the 12 months up to release of actual earnings per share. The bias is significantly more pronounced for the bottom-up forecasts of analysts. Unlike the findings for country timing, we demonstrate that a stock market timer using switching rules based on the consensus forecasts of S&P 500 earnings or the directional switch in the consensus or in the number of switchers cannot generate a free lunch. © 2000 Elsevier Science Inc. All rights reserved.

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Predicting Long-Horizon Stock Returns: Evidence and Implications

Cited by 11 publications

References 0 publications

Time Diversification Revisited

Time Diversification Revisited

Risk–Return Assessment: An Overview

Market timing using strategists’ and analysts’ forecasts of S&P 500 earnings per share

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